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The reason is that the Sharpe Ratio is typically defined in terms of annual return and annual deviation. As everyone has said, you go from daily returns to annual returns by assuming daily returns are independent and identically distributed. With that assumption, you get annual return by multiplying by daily return by 252 (compounding makes little ...


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The Sharpe Ratio is a direct measure of reward-to-risk. To see how it helps you in creating a portfolio, please consider the following graph:- The Sharpe Ratio of X is the slope of the line joining cash with X There are three important things to notice in this graph: If you take some investment like "x" and combine it with cash, the resulting portfolio ...



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